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Populism 'latest excuse' to underweight Europe, says JPM’s Macklow-Smith

Populism 'latest excuse' to underweight Europe, says JPM’s Macklow-Smith

Populist politics is just the latest excuse investors are using to underweight their allocation to Europe, according to Stephen Macklow-Smith.

Speaking to Citywire Selector, Macklow-Smith, who runs the JPM Europe Equity fund, said looking at outflows from European equity showed investors were missing out on potential returns from the asset class.

'I think people have found Europe a very easy market to underweight. If you think about what is going on at a fundamental level, a lot of the investors have looked at the political backdrop and almost used that as an excuse not to shift their weightings,' Macklow-Smith said.

'Europe gets bad press globally and my suspicion is that's because it is a single currency area and a monetary union without a political union. If you have an education in an Anglo Saxon university then you are taught as part of your economics degree that that doesn't work.

'People are continually looking for reasons why it might fall apart. Populist politics is just the latest one,' he added.

Macklow-Smith added investors in markets such as the US or the UK, where voters have fewer political parties to choose from, it was easier to fear the rise of right-wing parties.

However, the political landscape in the Netherlands and France is fragmented and Macklow-Smith doubted that the Dutch nationalist Party for Freedom would win a significant majority.

'The Dutch election is probably the first piece of confirming evidence that fears about political risk are, if anything, overstated. In the run up to the election, people rather misunderstood the nature of the Dutch political spectrum, he said.

'I think you need to take that and look forward to the French election, where there have been a lot of headlines about how Marine Le Pen is ahead in the opinion polls for the first round.

'The whole point about French elections is that they take place in two round and any winner has to get 50% of the poll.'

German mini boom

On a country basis, Macklow-Smith has 14.6% of the fund devoted to Germany. He said the country has succeeded in a number of reforms to make it more competitive and, while interest rates are negative, the country is growing.

'The one thing that you can guarantee in Germany is that you are not going to have a massive consumer binge led by borrowing because Germans are naturally distrustful of high levels of consumer credit.

'What we will get is a German 'mini-boom', as export markets look okay and industrial confidence is okay,' he added.

Over three years to the end of February 2017 the JPM Europe Equity fund returned 18.59% in euro terms. This compares to a rise of 20.43% by its Citywire-assigned benchmark, the FTSE World Europe TR, over the same time frame.

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